2023 in review and a real estate forecast for 2024

This article provides a bird’s eye view of the legislative changes and economic shifts which impacted real estate professionals during 2023. We then look ahead to the property market in 2024, and beyond.

Another year has come and gone for the real estate industry. Looking back, 2023 was characterized by rising interest rates, slowing sales — and major shake ups at the trade union.

Brokers and mortgage industry professionals alike have lost income during 2023 due to both slowing sales and faltering home prices. Stay ahead of the housing market’s recession by catching up on the regulatory, legislative and economic updates to California’s real estate market in 2023. Then, read our forecast for what 2024 has in store for housing and commercial property.

DRE regulatory updates

2023’s roll-out of new Real Estate Practice course requirements affects both prospective licensees studying to become sales agents and agents planning to become brokers.

From now on, prospective real estate agents and active sales agents who apply to take the California Department of Real Estate (DRE) State Exam to become either a salesperson or broker need to have first completed an enhanced Real Estate Practice course. which includes:

• implicit bias;
• fair housing; and
• interactive participatory components.

Any certificates of completion for all “old” Real Estate Practice courses will no longer be accepted by the DRE to qualify when applying to take the state exam.

Editor’s note — Similar requirements went into effect in the continuing education (CE) ecosystem in 2023.

Separately, mortgage loan originators (MLOs) now have a new way to renew their licenses.

firsttuesday’s new NMLS video course was released in 2023. California real estate licensees who hold either an MLO endorsement from the California DRE or are licensed with the Department of Financial Protection and Innovation (DFPI) may renew their annual NMLS registration with firsttuesday’s new 8-hour NMLS CE Online Video course.

Agents and brokers who are seeing their sales figures plummet can consider getting an NMLS license to maintain their income during 2024 and any future years of lower sales volume and FRM rates.

Activities a DRE-licensed individual may perform with an MLO endorsement include:

• mortgage brokerage;
• mortgage servicing;
• the negotiation of mortgage modifications; and
• short sale negotiations. [Calif. Business and Professions Code §10131(d)]

Thus, DRE-licensed MLOs can earn and supplement their income from both sides of the market — the sales side and the mortgage side.

One more regulatory update which occurred at the end of 2023 was the retirement of DRE Commissioner Doug McCauley and the announcement of the new commissioner, Chika Sunquist.

Sunquist will take over the position at the start of 2024 and is well positioned to jump right in, as she has held numerous positions at the DRE since 2006.

Related article:

Governor appoints new DRE Commissioner

Home sales in 2023

2023 was a year of overall weakening for California home sales volume, as today’s supply of homebuyers was exhausted during the 2021-2022 pandemic buying spree. Not to mention, higher interest rates — still unmatched by decreased prices — have slashed buyer purchasing power. With less mortgage money available to pay the price of a home, homebuyers are left to either purchase in a lower price tier (unlikely) or wait for prices to drop to match what lenders will lend (more likely).

While year-end sales reports are not yet in, as of October 2023, sales volume year-to-date (YTD) was a whopping 29% below a year earlier. Compared to 2019 — the last year before pandemic volatility took over — sales volume YTD in October 2023 was 33% lower.

Before pandemic economics struck to damage the housing market, home prices in 2018-2019 had cooled to the point of keeping pace with incomes. Then, to keep the economy from sliding during the global health emergency, the Federal Reserve (the Fed) induced historically low mortgage rates in 2020-2021. Enabled by the resulting, unprecedented gains to buyer purchasing power, home prices demanded by sellers surged even as we worked our way through the 2020 recession and distorted Pandemic Economy.

The effects rapidly reversed in 2022, when mortgage interest rates leapt from historic lows. The resulting crash to buyer purchasing power removed monetary support for excessive home prices sought by sellers. Thus, the price decline which began in 2022 was easily anticipated.

In Spring 2023, home prices experienced a temporary seasonal bounce. However, prices resumed their decline across California’s major metros by Fall 2023.

Watch for these weakening trends in sales volume and pricing to continue in 2024.

Trade union dis-union

Real estate agents are still reeling from the November 2023 news of the $1.8 billion National Association of Realtors (NAR) lawsuit.

The lawsuit targeted industry-wide cooperative compensation rules which violate anti-trust law, namely:

• preventing multiple listing services (MLS’s) from disclosing fee rates to consumers;
• misleading buyers into thinking the buyers broker’s services are free for buyers;
• bundling the buyers and sellers brokers fees, which essentially positions the sellers broker to always control or collect both fees;
• allowing buyers brokers to filter MLS listings based on the portion of the sellers’ fee rates offered to buyers agents; and
• limiting lockbox access to NAR® members only, not all MLS participants in general.

With estimates about the lawsuit’s fallout ranging from 30% less agent fees annually to an 80% reduction in the agent workforce, some agents are beginning to panic.

Instead of panicking, NAR® and its members will be wise to look at how fees are structured, to avoid more lawsuits against big brokers (many of which are already in the works). This may include:

• actually disclosing the buyers agents’ fee in a written buyer’s listing agreement at time the agency is undertaken; [See RPI Form 103]
• openly advising the fee amount is negotiable by the buyer; and
• forcing the local MLS to open participation, fully and without restrictions, for equal access by non-trade union members licensed by the DRE.

Editor’s note — While it may come as a surprise to some, disclosure of all fees to clients — whether it be on the buy side or sell side — has long been required by law. [California Business and Professions Code 10176(g); See RPI Form 102]

Further, for five decades, access to any MLS supersedes any requirement to be a member of NAR® or a local AOR — despite what you may have been led to believe.

Related article:

Changes to agent fees following the NAR® lawsuit

Trade union woes aside, reduced fees due to slower sales in 2023 have led brokers to consider business strategies to boost their net income, including:

• offering alternative fee structures;
• providing broker price opinions (BPOs);
• becoming broker associates;
• cutting costs by introducing workplace efficiencies and reducing branch offices and agents;
• opening the doors to more streams of income by becoming an MLO with a finance department;
• opening a property management division (a recession-proof career); and
• opening an in-house escrow department.

Staying ahead of trends by evolving your practice is always helpful for agents looking to make a living — but to survive the ongoing real estate market recession, it’s essential.

New laws for 2024

2023 saw a load of new laws impacting real estate in California which will take effect in 2024.

For appraisers, a new law requires the Bureau of Real Estate Appraisers (BREA) to collect demographic information from appraisers in an attempt to fill the information gap surrounding appraisers. The BREA will publish aggregate demographic data on their website, making it easier to spot trends in discriminatory appraisals. [Calif. Business and Professions Code §11347]

For California landlords:

• a new law was passed to revise the Tenant Protection Act (TPA), changing when and how a landlord may conduct a no-fault just cause eviction;
• Section 8 tenants must be given an option to use a credit history alternative to demonstrate their ability to pay their portion of the rent; and
• another new law prohibits landlords of most residential rental property from demanding a security deposit equaling more than one month’s rent — or, no more than two months rent when the landlord is a “mom and pop” ownership vested with no more than two residential properties consisting of no more than four rental units.

Recent years have seen legislators attempting to rectify the negative effects of the housing shortage by encouraging more construction of moderate- and low-income housing, including accessory dwelling units (ADUs). In 2023, this included passage of:

• AB 1490, which overrules local city councils seeking to limit housing growth by classifying a housing development as an “extremely affordable adaptive reuse project” located on an already improved infill parcel, qualifying the structure to be repurposed as an allowable use; [Calif. Government Code §65913.12(b)]
• AB 976 prohibits a local agency from imposing an owner-occupancy requirement on any ADU; and
• AB 42 prohibits a local agency from imposing or enforcing fire sprinkler requirements for any dwelling with a total floor area of less than 250 square feet, also known as a “tiny home,” in communities of 50 or fewer temporary sleeping cabins intended to house the homeless population.

Stay tuned in 2024 to new laws coming down the pipeline by following firsttuesday’s Legislative Gossip page.

Attorney General actions

2023 saw the Office of the Attorney General (OAG) pursue several actions to further the State’s housing agenda.

The OAG is cracking down on:

• unlawful telemarketing practices;
• Rent and eviction TPA violations;
• mortgage fraud, perpetuated by the easy money of 2021, with much of it just now being prosecuted;
• unlawful “crime free” tenant-approval policies; and
• local councils violating housing policy by devising purported workarounds to avoid any construction of low-income housing in their communities.

To further boost the OAG’s powers to pursue housing-related issues, a law passed in 2023 authorizes the OAG to intervene without prior judicial review in any legal action addressing a violation of state housing laws by a local agency.

With this new law giving fuel to the OAG and allowing expediency, expect to soon see additional legal actions against wayward local councils in the year 2024.

Related article:

New law adds muscle to Attorney General’s Housing Strike Force

Forecast for 2024 and beyond

Sales volume, prices, mortgage originations, and FRM rates will continue to slide in 2024.

Real estate speculators will return to provide a short-lived sales boost in 2025-2026, causing minor bumps to sales volume and prices but no lasting recovery until end user homebuyers return.

Watch for home sales volume to continue trailing in 2024. Without the support of a steady rush of home sales, home prices have resumed their decline, causing recent mortgaged homebuyers to dive underwater. Expect a return of real estate speculators by 2025 to provide a “dead cat” bounce during the ongoing sales slump, with a sustainable recovery taking off with the return of end user homebuyers around 2026-2027.

Survive the downturn

Home sales will continue to fall back in 2024 due to:

• today’s high mortgage interest rates, which have slashed buyer purchasing power by reducing the capital buyers can borrow to fund the maximum purchase price they are able to pay for property, down 11% from a year earlier and, more instructive, down 30% from 2019 as of Q3 2023;
• lower homeowner and tenant turnover as buyers face the dual dilemma of mortgage rates which limit the amounts borrowed as purchase-assist capital, and sellers’ sticky asking prices as above buyer capacity to fund, while inventory increases melt away any buyer FOMO; and
• the broader economic recession, anticipated to bring job losses by mid-2024.

Looking further ahead to recovery, expect a return of real estate speculators in 2025-2026 to provide a short-lived bounce, bringing an end to the sales slump.

A sustainable recovery will take off with the return of end user homebuyers around 2026-2027. With inventory still low, that will produce a flipper’s paradise unless we have a long-encouraged (now state-enforced) coastal surge in residential construction of all types.

In the meantime, to counteract the resulting reduction in fees, agents can take on side gigs available in a multitude of fee-based real estate services, including:

• obtaining a higher fee split by upgrading to a broker’s license;
• gaining new marketable skills like becoming a notary public;
• earning a mortgage loan originator (MLO)endorsement to assist homeowner clients obtaining a mortgage;
• rounding out your skillset by becoming a property manager— one of the few recession-proof real estate jobs;
• becoming a foreclosure and short sale specialist, as distressed sales inevitably rise when home values drop;
• assisting with the management and sale of real estate owned (REO) properties; and
• using the recession as a launchpad for investment by becoming an expert in forming real estate syndicatesand 1031 exchanges.

Poised to profit off existing contacts in real estate-adjacent services, these agents and brokers will survive and succeed even as the housing market continues to slip deeper into the recession.

Track California’s housing market in 2024 with firsttuesday — subscribe to Quilix for your Monthly Statistical Update and more real estate market analysis in your inbox every week.